General Meeting Season Review - September 2019 - Link Market Services GmbH
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General Meeting
Season Review
September 2019
An Orient Capital Company
D.F. King Ltd is internationally renowned for securing shareholder support in corporate actions. We specialise in designing, organising and executing campaigns for Annual General Meetings, Extraordinary General Meetings, takeovers, proxy defences, shareholder activism and corporate governance advisory. Founded in 1942 in the United States, D.F. King is one of the world’s oldest proxy solicitors, and has been playing a leading role in proxy solicitation and M&A globally since the group’s incorporation. North America and Europe are home and core, historic markets where D.F. King has been securing shareholder support for decades. In the past three years, our D.F. King Ltd team have worked on over 500 mergers, offers, general meetings and/or contested situations across EMEA. Orient Capital, our parent company and provider of investor relations services, is a global leader in share ownership analysis, equity market intelligence, investor communication and shareholder management technology, working with around 1,800 issuers globally. Together, we work on numerous sophisticated AGM/EGM & M&A campaigns by providing our clients with combined solutions that have consistently delivered successful results. Both Orient Capital and D.F. King Ltd are members of ASX-listed Link Group, a leading global administrator of financial ownership data within the pension fund industry and across corporate markets. Our corporate markets capabilities include registry, employee share plans, investor relations and stakeholder management. We operate from offices in eighteen countries throughout Europe, Africa, the Middle East, Hong Kong and Australasia. www.dfkingltd.com www.orientcap.com www.linkgroup.com
INTRODUCTION
As we look back over 2019, it is evident we are experiencing a sea change across the industry which is
being driven by corporate governance.
We have seen a greater emphasis, through the changes in local corporate governance codes as well as
the EU Shareholder Rights Directive II “EU SRD II”, is placed on Environmental, Social and Governance
(ESG) factors in the investment decisions of institutional investors. Even the US Business Roundtable’s new
Statement on the Purpose of a Corporation, indicates the era of shareholder primacy may be at an end.
The corporate governance community in the UK and Europe has played a central role in this revolution.
Many of the key events have occurred at AGMs across the EMEA region this past year. The market’s
continued yearning for greater accountability and transparency from boards will increase in 2020 and
companies need to maintain their ability and willingness to do so.
In this year’s report we are pleased to have been able to include alongside our annual research, expert
views from across the boardroom, investor universe and corporate world. We would like to thank all our
guest experts for their contribution.
Our five key observations for consideration in 2020 would be:
1. The movement from shareholder to stakeholder relationships will accelerate and an even more
stakeholder centred strategy will be required.
2. The global convergence of corporate best practices will lead to further, but clearer, change.
3. The implementation of local codes culminating with the role out of the EU SRD II, will set out to strengthen
the position of shareholders and to reduce short-termism and excessive risk taking by companies.
4. ESG will become firmly implanted into the investment strategy of long-only institutional investors.
A corporate shift in focus on these areas could lead to competitive advantage.
5. Shareholder activism will become more common place across the region and having both reactive and
proactive plans in place is a must.
In summary, we expect the 2020 AGM proxy season to be an exciting one across the region. Our experience
and the research for this review has illustrated that most corporations have integrated corporate governance
issues into their AGM and are prepared for their new responsibilities under the EU SRD II. However, while the
‘best’ make it easy for investors to understand the alignment of their strategy and even their purpose with
their return, less are aware of the potential risks from activist investors, a key theme for the coming year.
Best regards,
David Chase Lopes
Managing Director, EMEA
D.F. King
E: david.chaselopes@dfkingltd.com
T: +33 6 72 54 69 79
An Orient Capital Company | Part of Link Group 3
EXECUTIVE SUMMARY
AN OVERVIEW OF THE UK AND EUROPEAN
MARKET PLACE
PARTICIPATION LEVELS governance in these countries is broadly aligned
with institutional investor expectations with fewer
market specific practices which deviate from these
AVERAGE AGM PARTICIPATION
than in the other markets we looked at.
2017-2019
“Homogenisation of standards…
80
companies would do well to keep
75
an eye on the voting behaviours
and governance trends in
% 70 neighbouring countries.”
That being said, the fact that only 3.7% separates
65 the UK and the other four leading European markets
shows that, overall, shareholders are continuing
60 to support management proposals at European
2017 2018 2019 AGMs. How long this steady support continues for
remains to be seen as regulatory changes converge
UK Switzerland Germany with increasing pressure on investors to exercise
France Belgium stewardship across Europe. Furthermore, as scrutiny
builds on the Environmental, Social and Governance
AGM participation levels remained stable across all (ESG) reporting, it is likely that shareholders will
markets in 2019. continue to integrate this into their voting strategies.
The UK continues to enjoy the highest level of With the homogenisation of standards being driven
average shareholder participation in the markets not just by investors and the proxy advisory agencies
examined and this remained flat at around 74%. but also through cross border regulation such as
SRD II, European companies would do well to keep
Switzerland, which saw decreases over the
an eye on voting behaviours and governance trends
previous three years, saw a small recovery for
in neighbouring countries.
2019.
Germany saw a slight decrease from around 70% AVERAGE AGM SUPPORT
to 68%, while France was the only country which PER REGIONAL MARKET
showed a noticeable increase year on year.
STEADY SHAREHOLDER SUPPORT
Belgium 93.91
The majority of AGM proposals continue to pass
with high levels of shareholder support and the UK France 94.30
continues to have the highest average support of
the markets we examined. Germany 95.28
High support levels in the UK and Switzerland are Switzerland 95.48
arguably reflective of the maturity of governance
practice in these markets. Furthermore, corporate UK 97.70
%
4
“The need for companies to
respond to minority opposition REGULATORY CHANGES
is also creeping up the agenda Regulatory changes were apparent in most of the
across Europe.” markets we examined, in part driven by the need for
EU member states to implement the requirements
KEY THEMES of the SRD II. While the UK and France have
the necessary requirements around say on pay
Investor concerns which spanned the markets
in place for some time, Germany and Belgium’s
examined included a continued focus on the issue
reforms in this regard still remain in draft format.
of overboarding. Reflecting this, 2019 saw several
large institutional investors tighten their guidelines
on the topic. BlackRock, Amundi and MFS
“Investors and the proxy
Investment Management are among investors advisory agencies are
who have now stated that they view Directors who increasingly expecting to see a
hold more than four Board mandates in total as
company pay heed to votes
potentially being overboarded.
which fail to cross 80%.”
The issue was also repeatedly mentioned by
the two major proxy advisory agencies, ISS and
New Corporate Governance Codes were
Glass Lewis, in their supporting rationale for
published in Germany and Belgium, the UK moved
recommending against Director elections.
a step closer to releasing an updated Stewardship
The need for companies to respond to minority Code and France brought in new laws in relation
opposition is also creeping up the agenda across to employee representation, corporate purpose
Europe, as investors and the proxy advisory and M&A law.
agencies are increasingly expecting to see a
company pay heed to votes which fail to cross the PROXY ADVISORY AGENCIES
80% mark. Proxy Advisory Agencies have been under
Another key theme for 2019, and one which is increasing scrutiny in recent years and 2019 saw
picked up in our Expert View sections, is that this ramp up both in the US and Europe. In the US
of corporate purpose. It featured heavily in the the SEC recently announced that proxy advisers
UK’s updated Corporate Governance Code, the would be subject to anti-fraud regulation in
PACTE law in France as well as threading through regards to false or misleading statements as well
BlackRock CEO Larry Fink’s annual Letter. as leaving the door open to further regulation.
Indeed, company purpose is even being In Europe there have been a series of new rules
questioned in the USA, home of shareholder introduced to try and enforce greater transparency
primacy, where the influential Business from these organisations in the wake of the SRD II.
Roundtable, an association of CEOs of America’s Recognising some of these criticisms, a group of
largest companies, has released a statement the largest Proxy Advisory Agencies have signed
reframing the purpose of business as being tied to up to a set of voluntary principles published by the
stakeholder value. Best Practice Principles for Shareholder Voting
Some of the issues seen in 2019 were market Research and Analysis Group (BPPG).
specific, whether executive pensions in the UK,
Directors’ discharge in Germany or non-compete
clauses in France, each perhaps reflects the stage
each market is at in its development of Corporate
Governance.
An Orient Capital Company | Part of Link Group 5
EXPERT VIEW The Responsible Investor
Matt Christensen
Global Head of Responsible Investment
AXA Investment Managers
“Corporate governance is
shifting… I don’t believe that
‘ESG’ is a new answer or
What is the driving force behind the scrutiny
which is placed on listed companies and its challenge – it’s just a part of
shift towards ESG? the solution.”
I think here what you have is pressure being placed and bottom up. I don’t believe that ‘ESG’ is a
on the market from both the regulatory aspect new answer or challenge – it’s just a part of the
and from the demand side. In Europe there is a solution. In the future, the most material social and
regulation-oriented approach and much like we environmental issues will just be looked at as being
have seen with the reform seeking transparency a part of good corporate governance.
and integrity around data, GDPR, the EU is seeking
similar changes through initiatives like its push on Who has greater influence over company
sustainable finance. They’re looking for ways to practices, Regulators or Investors?
bolster the EU through better corporate governance
It’s a mix and not a clear-cut trend. As I said, EU
and, as part of that their view is that concerns
standards as a policy vehicle are in this mix and this
such as climate change should be brought into the
is driving shifts in corporate behaviour. On the other
system and not externalised.
side, I often hear a lot of competitors in the US
At the same time, you can’t ignore the fact that saying they were having to get their heads around
citizens’ interests are changing overtime, so there ESG standards because that’s what their European
is a demand side to this which is shifting. We can clients want. So here this is very much client-driven,
see this in the choices consumers are making on based on a minimum set of ESG standards to bring
everything from travel, food, clothing, housing, into corporate governance.
transport and investing.
What’s also interesting is that the private banking
Therefore, we have issues like climate change and wealth management sectors are increasingly
creeping up from both from the regulatory side asking for a differentiated product or for
and the demand side, and companies are having differentiated products as well. So for investors it’s
to address this which in turn is leading to investors about considering how you do active ownership
having to align themselves accordingly. That’s why with concentrated portfolios, and thinking about
I believe corporate governance is shifting, because what your engagement is trying to achieve. In
you have this double-push between the top down terms of who has the greater influence I think
6
“We need to think about how we
that this is almost a shared responsibility and show the regulators, our clients
naturally companies are having to listen to a host of and the media that we’re
stakeholders when reaching decisions. owners and not just passive
How can traditional long-term investors by-standers to management.”
maintain their relevance against the growth they want us to focus on. We’re shifting from just
of the passive space in addition to the rise thinking about compensation, Board management
of activists? or competence, and thinking more about the role
There’s no doubt in my mind that in the next five of companies in society and how this interacts with
years, you are going to see consolidation among their fiduciary duty. This is something that’s evolving
active asset managers. Those who are going to and will be a key area where we’ll see change.
be on the winning side of it will have differentiated In terms of reporting on engagement, as investors
strategies that are well positioned for future demand. we need to be able to show what we’re doing
We can’t ignore the fact that asset management as behind the scenes. While I ask my teams to tell me
an industry is under pressure. It’s under pressure how we voted on specific resolutions, it’s also about
between passive and active, and also under looking at how we partnered with others to apply
pressure from clients and their increasingly bespoke pressure and make a change.
demands. ESG, and how to integrate social and In the next five years, we need to think about how
environmental issues into a concrete message we show the regulators, our clients and the media
about strategy around voting and engagement, is that we’re owners and not just passive by-standers
becoming an area where asset managers want to to management.
differentiate. If you only rely on performance, your
product is not going to stand out. Is there a contradiction between investor
returns and good corporate governance?
“...we need to think about how How does AXA work to align this?
we show the regulators, our I think this is a fallacy but the time horizon of an
clients and the media that we’re investor can’t be ignored. Traditional activists
typically play off a short-term horizon, for example
owners and not just passive where they might come in and try to get a board
by-standers to management.” seat there can be a longer-term benefit but
ultimately that’s not the intention. At AXA we’re often
I think there will also be new sets of reporting looking at a 2-3-year horizon and we don’t think of
standards coming out around engagement, the UK it as a return profile. We look at the issue in terms
is ahead on this with its latest Stewardship Code. of building more resilience which will build a better
At AXA we see this with our own clients and what company, therefore better returns overtime.
An Orient Capital Company | Part of Link Group 7
EXPERT VIEW MATT CHRISTENSEN
How are you ensuring that ‘purpose’ is What are the key indicators of a company’s
factored into discussions you are having ‘governance’ health?
with companies? If I had to be pushed to name one, it would be to
I am fortunate to be part of a group of investors look at the checks and balance in place. I’m not
where we get together a few times a year to talking about binary options like splitting off the
have an investor-director dialogue and the aim CEO and Chairperson roles, indeed if you have a
is to better understand each other’s challenges. very good Senior Independent Director in place
Directors often say they have time scarcity issues perhaps this is not always necessary.
and want to know how can they get past the What I am more interested in is how the Board is
compliancy functions of the job and get to the more shaped to ensure it has meaning and is it able to
strategic functions. have a very good discussion with management
We often discuss whether the directors talk and not feel intimidated. That’s the key to
about the purpose of the company and what the governance, to move away from just ticking the
company’s mission is. Do they remind themselves of box to actually understanding what underpins
this before they see the numbers and the reporting performance.
they have to get through? Mostly the answer is no As an investor this is tough, just examining
and so this is an area we’re trying to push, so that biographies or the externally presented Board
discussions start off at a more strategic level and so composition is not going to give the full picture
that directors feel they have more ownership of the and we can’t be party to all the discussions going
organisations which they’re leading. on internally.
MATT CHRISTENSEN
Matt has directed the responsible and impact He previously held the position of Founding
investment activities of AXA Investment Managers Executive Director of the research institute Eurosif
(AXA IM) since joining in 2011. His key recent from 2002 until his appointment at AXA IM. Prior to
projects include the implementation of an ESG that, Matt advised European clients as a strategy
integration approach across AXA’s asset classes consultant with Braxton Associates/Deloitte
as well as the development of impact investment Consulting, before becoming business development
fund strategies. director of the Motley Fool, a multimedia financial
services company.
He has been a leading voice in the fields of
responsible and impact investment and was He holds MBA and MA degrees from the University
a member of the European Commission’s of Pennsylvania through the Wharton/Lauder
Co-ordination Committee to explore the future of programme. Matt resides in Paris with his wife
sustainability policy and legislation in the EU. and three children and was born and raised in the
United States.
8
A SPOTLIGHT ON The United Kingdom
MARKET UPDATE
The past few years has seen the UK implement Looking ahead to
a raft of regulatory changes around corporate 2020 and how the
governance, culminating in the 2018 UK Code is reported on, while
Corporate Governance Code. 2019 therefore was attention will no doubt be
somewhat of a transitional year as companies on workforce engagement
began to implement the necessary changes to and Chairperson
reflect these new expectations. That did not, independence, what will be interesting is
however, mean that this year was an entirely how companies deal with the more intangible
peaceful AGM season, and while it is unsurprising requirements of the Code. Company purpose
that the dominant issues continued to focus on was prominent in the new version of the Code
composition, what is interesting is how the debate but Boards may struggle with the meaningful
is evolving. implementation and reporting.
The role of the external auditor dominated Finally, no comment on the UK can escape
headlines with repeated suggestions of failure and mention of Brexit and, whatever ends up
an increase in interventions from the regulator. happening, this will have profound implications for
On the topic of the FRC, an independent review the market. Some companies could feel the need
led by Legal & General Chairperson, Sir John to evaluate the suitability of a UK listing once the
Kingman, published a series of recommendations UK leaves the EU and regulators will likewise be
which amounted to a suggestion that the FRC be assessing how to maintain competitiveness and
disbanded and reformed as a newly empowered retain business.
regulator named ARGA (the Audit, Reporting and
Governance Authority). Most of the suggested
powers which ARGA will have focus on Audit AVERAGE APPROVAL RATES PER
and Reporting. What Directors may find more PROPOSAL CATEGORIES
concerning is the greater remit to involve itself in a
100
company’s governance.
99.42
99.18
98
98.87
98.33
98.12
98.11
Meanwhile, the impact of the Investment
97.17
96
96.72
96.32
95.27
Association public register, which is expanded upon 94
94.82
94.67
94.12
92
later, continues with companies needing 80%+
92.77
92.41
% 90
support to avoid being ‘named and shamed’. This
88
pressure is only likely to increase as responding to 86
such opposition becomes a component of Code 84
compliance. While there is a growing need for 82
Boards to respond to significant minority opposition 80
Board of Capital Financial Organisational Remuneration
in other European markets, the UK is the first to Directors items
hardwire it into a corporate governance code. 2017 2018 2019
An Orient Capital Company | Part of Link Group 9
A SPOTLIGHT ON The United Kingdom
“The introduction of a nine-year
cap for Chairperson
independence…will require
The introduction of a nine-year cap, inclusive of
many companies to start thinking
time served as a Non-Executive, for Chairperson
about succession sooner.” independence will require many companies to start
thinking about succession sooner than they may
REMUNERATION have hoped.
The remuneration issue which garnered the Staying with Board composition and shifting to
most attention in 2019 was undoubtably that of the debate around diversity, relative success has
executive pensions, driven by the greater focus been made in gender diversity with 30.2% of FTSE
the new Code pays to this, in addition to a public 100 Board members being women. While there is
campaign on the matter by The Investment still more progress to be made, attention is now
Association. FTSE banks came off worst from moving onto diversity beyond gender as well as
media perspective and while the likes of HSBC diversity beyond the Board. The UK Code now
were quick to react by bringing their executive tasks Nomination Committees with succession
pensions in line with the new expectations, others planning which promotes diversity of gender,
were less responsive. social and ethnic backgrounds, in addition to
reporting on the gender balance of those in the
Standard Chartered suffered a bruising AGM over senior management and their direct reports.
the issue with their remuneration policy receiving
almost 40% opposition over the CEO’s pension IA PUBLIC REGISTER
contribution which amounted to 20% of his total
salary. Following the vote, one of the largest votes Sixteen FTSE 100 companies found their way
against a UK bank’s pay policy in several years, onto the IA’s public register in 2019 with a total of
CEO Bill Winters described investors as ‘immature twenty-six resolutions receiving the required 80%
and unhelpful’ in an outburst that lead one investor or less support. Of the resolutions which made
to describe him as ‘tin eared’. the list only once did the company publish both a
statement in their results and provide an update
Meanwhile, software company Micro Focus saw statement outlining the actions taken following
its vote on the remuneration report fail to gain the vote result, as per the Code. Ten companies
sufficient support, receiving just 49.67% approval. published a statement in their result but as of yet
Investor concern focused on both the annual have not followed up with an actions statement,
bonus and the LTIP and proxy advisory firm Glass four companies did neither and one company
Lewis laid blame at the remuneration committee’s withdrew the resolution entirely.
door, recommending against the committee
Chairperson and several other members.
Overall support for remuneration items fell by FTSE 100 RESOLUTIONS RECEIVINGEXPERT VIEW Boardroom Insight
Charlotte Valeur
Chair of the Institute of Directors
Every board faces countless forks in the road. For the starting-point, boards are beginning to
Maps are useful, setting out which steps you look beyond the bottom line, and asking what their
should take, with an answer for whatever dilemma company is for in a deeper sense.
might crop up. Such plans are hard to come by,
I would argue that this trend, more than anything
however, and never perfect. The world is too
else, defines the current period of UK corporate
complex to predict in its entirety. No strategy
governance. Auditing controversy, increasing
survives contact with the enemy.
demands for personal director accountability,
What boards need most of all is a compass. They and the growing influence of passive funds all
need something that can provide a rough sense constitute significant developments. But the
of direction over a long period of time, something question over companies’ purpose cuts deeper
that can indicate the way forward no matter how than them all.
complex the circumstances.
The UK’s 2018 Corporate Governance Code
The question is then, what can serve as that explicitly reflects the shift in emphasis. The Code
compass? When a strategic decision is in the introduced a new principle for firms to adhere to:
balance, what north star can boards rely upon to that ‘the board should establish the company’s
guide them? In the UK, the stock response might purpose’, and how this filters down into strategy
have been shareholder value. The Companies Act and culture. This new requirement is only
states that our legal duty is to act in a way that beginning to filter down into reporting. In many
promotes the success of the company ‘for the cases, it is one of the most difficult stipulations for
benefit of its members’, providing a touchstone for a company to meet.
directors to fall back on in times of uncertainty.
This broader view of a company’s role has also
Increasingly in the UK, however, this yardstick been displayed through the greater prominence
is seen as insufficient for the board’s decision- being given to so-called ‘softer’ elements of
making. Financial performance is being viewed governance. Listed firms based in the UK for
less as a starting-point for deliberations, and more instance face a range of new requirements to
as an intended consequence of broader actions. report on their engagement with stakeholders, and
in particular the workforce.
An Orient Capital Company | Part of Link Group 11EXPERT VIEW CHARLOTTE VALEUR
“The ability to define company
purpose is becoming Perhaps, however, this brave new way of viewing
boardroom decisions isn’t so new after all. Looking
paramount.” to the origins of the company, quite often these
Action in areas like sustainability and diversity organisations were created with a very limited but
can be difficult to justify from the immediate clear purpose, for instance mining one particular
perspective of shareholder returns. However, they part of land, or building one specific road. As
often fall naturally as a result of taking a more companies have developed, becoming larger and
purpose-centric approach. more complex, their underlying purpose has come
under greater risk of being lost.
To survive, boardrooms must be ready to grasp
this new approach. Setting aside the burgeoning Now UK company directors are waking up to
influence of the millennial generation, more and this. The ability to define company purpose is
more established investors are pointing the way becoming paramount.
forward in this regard. In his letter to CEOs this
year, Larry Fink made clear the ‘intrinsic link’
between profit and purpose. Purpose ‘unifies’ the
company, and is its ‘animating force’.
CHARLOTTE VALEUR
Charlotte Valeur was appointed Chairperson of Charlotte is a corporate governance expert and
the Institute in September 2018. As Chairperson, a keen advocate for diversity in the boardroom,
Charlotte is responsible for championing the underpinning this advocacy with action by
IoD’s values, promoting its objectives and founding Board Apprentice. This not-for-profit
providing leadership to the Institute, ensuring it organisation provides individuals hands-on
delivers maximum impact for its members and experience at the very top of business, and has
stakeholders. been cited in the Government’s recent reviews on
ethnic and gender diversity in UK boardrooms as a
Over the last decade, Charlotte has been a
resource for bringing about real change.
director of seven public companies, including three
appointments as Chairperson. During that period Before entering the field of governance, Charlotte
she has taken part in a complete restructuring of worked in finance, where she has over 30 years’
NTR Plc, the sale of REG to BlackRock and, as experience. Her career included stints with Société
Chairperson, overseen a $8bn Merger of Kennedy Générale, BNP-Paribas, and S.G. Warburg.
Wilson Europe Real Estate Plc with its US NYSE Charlotte grew up and studied in Copenhagen,
listed parent. Charlotte also has a range of unlisted and is conversant in six languages.
board experience with companies including
international engineering firm Laing O’Rourke. She
has been a member of the IoD for over a decade.
12A SPOTLIGHT ON France
SIGNIFICANT INCREASE IN HIGH AND
PARTICIPATION LEVELS INCREASING
After a slight increase in participation levels YEAR ON YEAR
at French AGMs in 2018, +0.42%, the 2019 APPROVAL RATES
season has seen a far more significant surge in Whilst France’s Corporate
participation levels of +1.83%, with an average of Governance landscape
73.34% of ISC voting at SBF 120 companies. has been healthy for a number of years, recent
This is not surprising in the context of an regulatory changes and regular updates to the
ever-increasing need for asset managers to AFEP-MEDEF governance code continue to
demonstrate to their clients they are responsible push issuers in the direction of international best
stewards. In parallel to this trend, certain outliers practice, even taking a leading role in a number
strongly contribute to this movement from a of instances such as shareholder oversight of
statistical point of view with strong increases executive remuneration, gender diversity on boards
due to capital structure changes and high profile and employee representatives on boards. This
meetings at EssilorLuxottica (+16.90%), Renault continuous improvement is evident in approval rate
(+12.10%), Air France-KLM (+11.67%), Scor Se data with an average approval rate of 94.30% across
(+9.66%), Dassault Aviation (+9.32%) and Genfit all resolutions vs 94.27% in 2018, 93.12% in 2017
(9.24%), for example. and 92.31% in 2016. In terms of resolution type,
board of director related resolutions saw a significant
increase in support of +1.46% and remuneration
AVERAGE APPROVAL RATE BY related items of +0.12%. Capital, financial and
PROPOSAL TYPE organisational items saw small decreases in their
average approval rates of less than 0.60%.
100
98 REMUNERATION
98.63
98.20
98.10
97.70
97.59
97.21
96
94
REMUNERATION – AVERAGE
94.44
94.02
APPROVAL RATES
93.53
93.55
88.79
93.39
92.98
% 92
100
90.91
90.79
90
89.54
98.56
88
98.18
97.78
86 95
84
Board of Capital Financial Organisational Remuneration
Directors items
91.13
% 90
90.63
90.16
90.05
2017 2018 2019
89.15
88.73
85
80
Non-Executive Remuneration Say on Pay
Remuneration policy (ex-ante)
2017 2018 2019
An Orient Capital Company | Part of Link Group 13A SPOTLIGHT ON France
Whilst we noted a slight increase in the overall forward-looking binding remuneration policy, which
average approval rate of remuneration related received 96.90% support at the 2018 meeting.
items of 0.12%, a further breakdown of the
At Renault, the binding vote on Carlos Ghosn’s
category nonetheless reveals that all sub-
pay was rejected with only 11.29% supporting
categories have on average seen their support
the item. This nonetheless has to be put into
levels decrease: -0.58% for remuneration policies,
the context of the scandal surrounding the
-0.78% for non-executive remuneration, -0.97%
ex-Chairperson/CEO’s arrest in Japan and
for ex post Say on Pay items and -2.91% for other
corresponding allegations. In fact, rather
items (pension schemes, severance payments,
than implementing a claw back under the
executive equity plans and unemployment and
circumstances, the Board of Directors of Renault
health insurance). The increase at the category
cleverly decided to recommend AGAINST this
level despite the decrease in each sub-category
item, ensuring it failed and blocking the payment
driver is due to variations in the number of
of Ghosn’s annual variable remuneration. In an
proposals year on year. Overall, issuers should
environment where a growing number of investors
take away that what may have been tolerated in
continue to push for claw back mechanisms in
previous years will not necessarily be adequate
a market where employment law renders such
going forward. Investor standards continue to
practices difficult, the possibility of such pragmatic
push for clearer alignment between executive
alternatives should be kept in mind.
remuneration and shareholder returns.
BOARD OF DIRECTORS
“…what may have been
tolerated in previous years will DIRECTOR ELECTIONS
not necessarily be adequate 95
going forward.”
94.49
94.38
The almost 1% average decrease in ex post 94
Say On Pay approval rates, two years after the
%
implementation of binding votes on the matter
following the Sapin II law, is revealing of greater 93
93.12
investor scrutiny and the end of a transitionary
92.90
year. Indeed, this season will also be remembered
for producing the first ever binding rejection on 92
Director Elections
an ex post Say-On-Pay proposal. The binding
vote on the remuneration due to the former CEO 2016 2017 2018 2019
of geophysical services company CGG, Jean-
Surprisingly, 2019 has seen a significant increase
Georges Malcor, for fiscal year 2018, garnered just
in average approval rates for director elections
44.3% support. This rejection came as a surprise
(+1.59%), despite a cross-market movement
as the payment was fairly modest and the award
towards stricter overboarding guidelines (see
had been clearly disclosed as part of Mr. Malcor’s
14executive summary) and despite increased disclosure laws: Atos (99.9% approval) and Carrefour (97.7%
around individual board attendance following the approval). As the PACTE Law only came into effect
revision of the AFEP-MEDEF code in June 2018. The late in the proxy season it is reasonable to expect
enhanced disclosure on individual board attendance further companies will take this step in 2020. The
provided investors with an additional motive to vote high approval rates and positive reception given to
against directors with low attendance. It is worth Atos and Carrefour’s proposals suggest this would
noting nonetheless that a number of companies be a popular move among shareholders.
already provided such transparency and overall, as
Other important consequences of this law include
the data suggests, issuers seem to be converging
but are not limited to:
more and more towards investor expectations on the
themes of independence, board diversity (gender, • Increased transparency on executive
internationalisation and skills) and director availability. remuneration and the relationship between
Furthermore, the numbers also suggest progress is executive pay and median employee pay;
being made towards greater dissociation of powers, • Increase in the number of employee
with a decrease in the number of dual Chairperson/ representatives on Boards required for large
CEO structures in the SBF120. companies (it is believed the majority of
Figures examined earlier in the year revealed 51 companies concerned are already aligned
SBF 120 companies had separated Chairperson/ with these requirements, leaving roughly
CEO roles and 21 companies had dual Board 50 Boards seeking 75 new employee
structures (supervisory and management boards). representatives);
• Further incentivisation of employee
REGULATORY CHANGE 1: THE PACTE shareholding;
LAW ADOPTED ON THE 22 MAY 2019. • Increased government powers on foreign
This eagerly anticipated legislative change brings investment in strategic domestic industries;
about a wide range of new measures. The • Reduction in M&A squeeze-out thresholds to
figurehead change, article 169, allows companies to 90% of issued share capital and voting rights
enshrine a company purpose (“raison d’être”), above (previously 95%).
and beyond generating profit to shareholders, into
the company by-laws. If implemented by a company, REGULATORY CHANGE 2: THE LAW ON
failing to adhere to this purpose could have legal THE SIMPLIFICATION, CLARIFICATION AND
consequences for the company’s corporate UPDATING OF THE CODE OF COMMERCE
officer(s). Alternatively, companies could choose ADOPTED ON THE 10 JULY 2019.
to adopt a new legal form « société à mission »
that would allow them to integrate alternative At first glance, most propositions seem intuitively
non-financial objectives into their by-laws whilst reasonable and in no way revolutionise current
remaining shielded from shareholder legal action. practices. Article 27, for example, suppresses the
During the 2019 season a number of companies requirement to present a share capital increase
devised a company purpose but only two submitted authorisation every three years, reserved for
a resolution to enshrine these principles in their by- employees in situations where they currently hold
less than 3% of the issued share capital. In reality,
An Orient Capital Company | Part of Link Group 15A SPOTLIGHT ON France
this requirement did not lead to an increase in A few years ago, issuers that envisaged the threat
employee shareholdings at companies that did not of a resolution being tabled on the day of the
wish to implement such a mechanism. general meeting would fiercely campaign with the
help of their advisors, to ensure that every investor,
“…companies can enshrine a custodian, and voting platform defaulted to the
abstention box on the AFNOR paper ballot. Indeed,
company purpose, above and without any proactive or intense communication
beyond generating profit.” efforts, voting ballots would predominantly return
without any instructions for this circumstance,
One measure, however, stands out and could
leaving the door wide open for activists to impose
have drastic consequences for companies
their will at the general meeting. Since then, a real
that are not prepared. Article 21 shakes up the
market-wide effort has resulted in voting platforms
current approval rate calculation methodology at
typically ticking the abstention box by default,
the AGMs of SAs (Sociétés anonymes). Indeed,
making the approval of a resolution submitted on
abstentions will no longer count as negative votes
the day of the AGM practically impossible for most
but will simply be extracted from the calculation.
ownership structures within the SBF 120.
This is already the case for French SEs (Societas
Europaea) and aligns France with the United The door will henceforth be re-opened to activists.
Kingdom and Germany. Nevertheless, there are Abstentions will no longer weigh into the debate.
French specific features within voting submission Issuers that foresee a risk on the day of the
at general meetings that warrant a more tailored AGM will have to lead a proactive solicitation
framework for the French market. campaign, to ensure that the number of votes
physically represented at the meeting in favour
Under certain conditions, shareholders have
of management are sufficiently abundant to
the right to table new resolutions or request
counterbalance any potential “attack”.
amendments to the existing proposals on the day
of the general meeting. The paper ballot (AFNOR) In this context, careful preparation, strategic advice
therefore enables non-attending shareholders to and on-going support become even more essential
express their views on this possibility ahead of in the build up to 2020 AGMs.
the general meeting (giving power of attorney to
the Chairperson, abstaining or giving power of
attorney to a third party).
16EXPERT VIEW The Corporate Purpose Pioneer
Alexandre Menais
Executive Vice-President and
General Secretary, Atos SE.
Atos’ company purpose: “Atos’s mission Some companies decided to draw up a
is to help design the future of the information sense of purpose without incorporating
technology space. Its services and competences it into their by-laws and submitting it to a
are underpinned by excellence in the advance shareholder vote. What do you think of this
of scientific and technological knowledge and choice and what do you imagine were the
research and in its commitment to learning
reasons behind it? Some investors have
and education. Across the world Atos enables
questioned whether there are legal risks
its customers and all who live and work in the
associated with the enshrinement of a sense
industry, to grow and prosper in a safe, secure and
sustainable environment.” of purpose into the company by-laws. Do
you think these risks are real?
Atos is one of the first CAC 40 listed Each company is free to choose the process it
companies to enshrine a sense of purpose. sees fit. Atos is the first big group to incorporate
What were the different factors that drove the company’s sense of purpose in its articles
you in this direction? of association, and this is a source of pride for
us. This represents a powerful act. It shows the
There was a fertile ground for the enshrinement of
impact and the commitment of our shareholders.
the sense of purpose into the company by-laws as
This is not solely a verbal commitment. It
we have been implementing CSR initiatives for the
demonstrates a strategic and legal commitment
past ten years with programmes such as “well-
of the group. This will shake things up internally in
being at work”, recently renamed “One Atos”. The
our employees’ perception of the group and in the
different Human Resources, CSR and Compliance
setting of the group’s strategy in the long term.
departments had already put a lot of efforts into
developing a CSR policy. The Board of Directors I cannot foresee any negative legal consequences
enhanced the company’s commitment to CSR by from this incorporation. On the contrary, by
creating a CSR committee effective since January incorporating our vision into the by-laws, it enables
2019. We see the enshrinement of the company’s us to truly set a direction which makes it much
sense of purpose into the company by-laws as more beneficial and it goes well above and beyond
a logical sequel to the processes we already had a standard legal entity status. In addition, on a legal
in place. side towards our shareholders, It is a way also for
An Orient Capital Company | Part of Link Group 17EXPERT VIEW ALEXANDRE MENAIS
“Our company’s sense of
purpose…is a pledge of
confidence towards our
clients and our shareholders.”
Atos in its CSR’ activities including pro bono events
to be more aligned with our articles of association. By integrating the corporate purpose into
The incorporation is also a pledge of confidence we the company by-laws, we show that Atos
have towards our clients and shareholders. is committed to ethical, environmental and
educational issues. Studies show that 70% of
How can companies ensure that their sense the young population look for a company and
of purpose is vertically integrated across the framework that aligns with their personal values
organisation? (which was not necessarily the case with the
We are currently assessing and evaluating our previous generation); therefore, companies must
corporate purpose i.e. how can we ensure an adapt. I believe that CSR, corporate purpose and
effective implementation across our various engaging on environmental issues for instance are
activities and footprint. Currently, our management essential for recruitment.
follows this closely. Additionally, it is worth
saying that we are one of the first big groups to
Do you have any further comments or
include our good CSR practice results within our messages you wish to get through?
integrated reporting. We report internally but also Our clients are very attentive to what we do, and
externally which again will be followed closely by we are convinced that the company’s purpose and
the Board of Directors and its CSR committee. our CSR commitments will shift Atos towards a
stronger focus on cyber security, privacy, adding
Do you believe that a company’s corporate value and monetising on this. It’s the challenge
purpose can impact recruitment and talent of the century for Atos. We are at a turning
retention? point today in our contribution to the information
technology space and its regulation.
Yes, I strongly believe so. There is a real war of
talents between companies nowadays. For big Our approval rate of 99.93% for the company
companies such as Google, Amazon and other purpose at the 2019 AGM shows that there is a
technology companies, the search for new talent real change underway. In the past, such approval
is crucial. Our services at Atos rest on talents rates would only be seen for financial accounts
with more and more required expertise. We must and results. The trend is changing, and it is a
notably position ourselves on current trends such very strong signal. This proves that there is a real
as cyber security and artificial intelligence. expectation from investors on these topics.
ALEXANDRE MENAIS
Alexandre Menais is Group General Secretary of and HEC. He started his career at Hogan Lovells
Atos. Member of the Group Executive Committee, and then joined eBay and Accenture as general
he is currently head of Group M&A, Strategy counsel, before joining Atos in 2011 as Group
and Corporate Development, as well as Legal, General Counsel. Alexandre Menais has been
Compliance and Contract Management. Alexandre member of the College of the Autorité de la
graduated from both the University of Strasbourg Concurrence since March 2019.
18A SPOTLIGHT ON Germany
MARKET UPDATE
The 2019 AGM Season in Germany has been Indeed, this
labelled something of an ‘annus horribilis’ by the appears to be
international press and while several companies recognised by one of
certainly felt the fury of shareholders, the broader the architects of the Code
picture is less extreme. itself, Rolf Nonnenmacher,
who in the press release
From a regulatory perspective, long awaited
accompanying the Code’s publication warned
changes to both corporate law and the Corporate
issuers that they “should make use of this
Governance Code have yet to be implemented. The
opportunity more actively than they have been
Act for Implementing the Second EU Shareholder
doing until now, before others set the standards for
Rights Directive (“ARUG II”) is still at draft stage and
German enterprises.” 2019 is emblematic of this
it looks highly likely that Germany will opt for one
and has shown that Code compliance does not
of the least rigorous applications of remuneration
necessarily mean an easy AGM.
reform of the markets we have examined. Likewise
some investors will bemoan a ‘missed opportunity’
for radical improvement from the Corporate
AVERAGE AGM SUPPORT PER PROPOSAL
Governance Code, which has dropped several of
TYPE
the bolder reforms from its final version which will
100
not come into effect until ARUG II is passed.
99.64
98.60
98.07
97.94
97.70
In Germany, therefore, we are starting to see
97.08
96.33
95
95.24
a chasm emerge between the regulatory
94.62
94.51
expectations placed on issuers and those coming
91.77
91.58
90
from the growing institutional investor presence. As
%
the Chairperson of the Association of Supervisory
87.61
86.21
85
Boards in Germany (Vereinigung der Aufsichtsräte
84.90
in Deutschland, VARD), Peter Dehnen, puts it,
80
institutional investors are “more dynamic and more
flexible as far as guiding the future of governance
75
is concerned”: he would not be surprised if they Board of Capital Financial Organisational Remuneration
Directors items
have a “greater impact on corporate decisions and
strategies than national Codes”. 2017 2018 2019
An Orient Capital Company | Part of Link Group 19A SPOTLIGHT ON Germany
SPOTLIGHT ON DIRECTORS The new Corporate Governance Code, when it
comes into effect, will no doubt give nominations
The headline grabbing issue for 2019 was the vote
committees something to think about. With greater
on Directors’ discharge, typically a routine agenda
specificity on what could impact on a Director’s
item which is essentially a vote of confidence in the
independence and a reduction in the number of
management or supervisory board; there has been
mandates Directors can hold there could be some
an overall decrease of 2.23% in the last year. 2019
Director turnover as Boards reconstitute to remain
saw the first ever failed discharge vote of a DAX-
compliant.
listed company along with two other constituents
getting below 65% support.
“Code compliance does
While it’s worth bearing in mind that these not necessarily mean an
companies were all facing legal issues or a
significant loss of shareholder value, the discharge easy AGM.”
item could also be emerging as a lightning rod
VW, who also received against recommendations
for broader investor concerns. With infrequent
on the discharge vote, saw all three directors up
director elections and low shareholder rights
for election in 2019, get against recommendations
around remuneration items, investors have fewer
from ISS and Glass Lewis as the fallout from the
options to express concern on the AGM agenda in
‘dieselgate’ scandal continued. That said, it
Germany than in other European markets.
appears to have insulated from this leading to any
Note that ISS in its annual policy survey, where it meaningful opposition at its AGM all items
gathers market sentiment on potential changes to presented received over 98% support.
its guidelines, has in its 2020 edition included the
suggestion that it could expand its approach to
recommending against discharge resolutions to AVERAGE APPROVAL RATES PER BOARD OF
include a wider set of circumstances. DIRECTOR ITEMS
On the election of Directors, while 2019 saw over 100
80 director election items put to investors it is
98
worth noting that almost two-thirds of these were
97.66
97.60
for incumbents. Opposition across the DAX and 96
MDAX focused on the same areas of concern as
95.43
94.80
% 94
seen across all markets, namely independence of
93.92
the supervisory board and/or its committees. 92
92.51
90
88
Director Discharge Director Elections
2017 2018 2019
20REMUNERATION For 2019 the biggest upset on remuneration
votes fell to Norma Group, who last year lost
The total number of remuneration-related items
their Supervisory Chairperson after shareholders
presented to shareholders in 2019 across the
voted against his re-election. They suffered
DAX and MDAX was down by almost a third from
another defeat with only 22.9% support for their
2018. Many issuers will undoubtably have one
remuneration system. ISS and Glass Lewis both
eye to the future given the regulatory changes
recommended against this resolution, citing a
which are inbound requiring a greater degree of
lack of disclosure on the targets underpinning
shareholder scrutiny of how German companies
both the annual bonus and the LTIP in addition
pay their Directors. The current draft of ARUG II,
to a significant increase in the CEO’s base salary
which is expected to be largely what passes into
without sufficient justification.
law, will give shareholders a non-binding vote on
Management Board remuneration. In addition,
there is a requirement to produce a remuneration AVERAGE APPROVAL RATES PER
report which will be examined by the auditor. REMUNERATION ITEMS
The Corporate Governance Code broadly picks
100
up from the specifications outlined in ARUG II,
99.56
99.16
98.70
96.21
95.24
specifying that the Supervisory Board should
94.47
90
devise a clear and comprehensible remuneration
system which defines the target and maximum 80
80.31
79.03
pay for each Management Board member and the %
split between fixed pay and Long and Short-term 70 74.90
variable pay.
60
50
Equity Non-executive Executive
plans remuneration remuneration
2017 2018 2019
An Orient Capital Company | Part of Link Group 21EXPERT VIEW The Governance View
Hendrik Schmidt
Assistant Vice President, Corporate
Governance Center, DWS
The 2019 AGM season in Germany has shown mandate. Looking at the boards, their composition
several records for the DAX-segment: the and the (re-)elections in 2019, we still see over-
participation rate increased to an all-time high boarding situations leading to votes against
of 67%, the dividends distributed amounted to qualified but overboarded candidates.
more than ¤36bn and the shareholders continued
Consequently, this also poses questions about
to criticize management and board resulting in a
the work of nominating committees. In one
historic non-discharge of a management board.
case all shareholder representatives’ mandates
Despite record-high dividend distribution, terminated – most of them completed a second
shareholders used their vote on the discharge of term. The Corporate Governance report mentions
boards and management as a mean to express that the nomination committee did not convene
their discontent. It seems that the well-established at all during the last fiscal year; it was therefore
acceptance rates of 90% and above have gone. no surprise that all directors were nominated
Management and boards have to engage more for re-election. Such a case illustrates that the
with their shareholders to secure votes for the nomination committee should apply due care and
discharge – otherwise 75 is the new 90. diligence and could have used this opportunity
to search for new candidates that enrich the
Directorships have become more time-consuming
Board and its discussions with new outside
and complex; they require further attention.
perspectives. Instead, the board decided to stay
We expect directors to fulfil their mandate(s) by
among themselves. The consequences of such
applying thorough care and diligence because
“continuity” will become apparent.
they are accountable for each of their mandates.
A special focus is on Chairpersons of the board Remuneration was again a hot-topic. Although
and of the Audit Committee, as their roles require several companies decided to wait until next year
even more attention and independent assessment following full implementation of SRD II, some
and judgement. To account for their extended took the courage and asked their owners for
responsibilities, DWS attributes Chairpersons a “say-on-pay”. Although intense discussions
of boards and Audit Committees an additional between issuers and investors took place, crucial
22“...the Code fails to reflect
internationally well-accepted
standards….or to set ambitious
elements such as missing claw-back provisions or
and demanding targets.”
insufficient (ex-ante) transparency also for extra- Last not least: the revision of the German
financial KPIs resulted in low acceptance rates. Corporate Governance Code has shown
With the transposition of the SRD II into national some drastic changes after nearly two years of
law, any form of say-on-pay vote will increase the discussion. The first draft was heavily criticized
number of such proposals. In case boards are not and more than 140 consultation papers from
delivering a convincing remuneration system, they a wide variety of respondents answered the
will be held accountable by the shareholders too. call for comment. As the revised draft was
published by end of May this year, changes
Besides the increased participation of institutional
were not effective for 2019. The Code gave up
investors with interventions, this year’s AGMs also
some well-established elements, i.e. a D&O-
saw some new attendees: activists from “Fridays
insurance for non-executive directors, thereby
for Future” quite clearly made sustainability a topic
changing “national best practice” reference. The
and delivered partially very emotional speeches
newly introduced criteria for independence of
calling management and boards to action.
non-executive directors was a promising step
These developments show that the emphasis on forward, but the Code fails to reflect internationally
sustainability needs to be driven even further by well-accepted standards (compared to the UK
investors. Corporate Governance Code) or to set ambitious
and demanding targets.
In addition, the improvements with regard to
shareholder identification and vote confirmation Consequently, such developments will lead to
should lead to a higher transparency along stricter and more explicit governance expectations
the voting chain. However, the technical by investors as they are bound to fulfil their
implementation bears some problems, especially stewardship obligations by being transparent
regarding the information flow between custodians. about their voting guidelines following SRD II.
HENDRIK SCHMIDT
Hendrik Schmidt is Analyst in the Corporate Mr Schmidt graduated as Master of Science from
Governance Center of DWS Investment GmbH HHL – Leipzig Graduate School of Management
and responsible for the regions: Germany, Austria, in 2016.
Switzerland and the UK. He represents DWS
In 2014, Hendrik Schmidt successfully completed
regularly at Annual General Meetings of portfolio-
the first German class of EFFAS/DVFA Certified
companies and publishes on corporate governance
ESG Analysts.
topics. Mr Schmidt is member of several
corporate governance bodies, among the DVFA- Before joining Deutsche Asset Management,
Commission on Governance & Stewardship and Mr Schmidt worked in the Acquisition Finance
the BVI Working Group Corporate Governance. Department of BHF-Bank AG where he completed a
dual traineeship as bank clerk (IHK-Bankkaufmann)
Formerly the Executive Assistant to the Supervisory
and parallel received his Bachelor of Science from
Board member Prof. Christian Strenger,
Frankfurt School of Finance & Management.
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